The advantages and limits of your private pension fund
The 3rd pillar is Switzerland's third pension vehicle, designed to supplement social security benefits (1st pillar) and occupational pension schemes (2nd pillar).
3rd pillar A and B: What are the differences?
The 3rd pillar is divided into two parts:
- 3rd Pillar A corresponds to individual savings for retirement. It offers tax advantages: amounts paid into the 3rd pillar A are deductible from taxable income, subject to sure ceilings set by law. Withdrawals are subject to capital gains tax. Working people with a pension fund can contribute up to CHF 7,056 a year, while those without a pension fund can contribute up to 20% of their net income, with a maximum of CHF 35,280 a year. It is also important to note that only working people can make Pillar 3a contributions, as they must be affiliated with the AVS scheme. Assets invested in this vehicle will not be taxed for the product's life.
- 3rd Pillar B corresponds to individual savings not linked to retirement. Unlike the 3rd pillar A, amounts paid in are not tax-deductible (with certain cantonal exceptions, such as Geneva). Withdrawals, on the other hand, are tax-free. Assets invested in this vehicle will be taxed throughout the product's life.
The 3rd pillar is, therefore, a way for individuals to supplement their cover for retirement or protect themselves against life's hazards. It is important to note that benefits vary from one financial institution to another, so it is advisable to compare the different offers before taking out a policy...
Limits and restrictions
However, the capital saved in Pillar 3a is blocked for up to five years before the AVS/AHV retirement age, except in exceptional cases such as financing a home, leaving Switzerland permanently, starting a self-employed business, or repaying a mortgage. What's more, the law governs the designation of beneficiaries, which leaves little freedom.